Friday, December 30, 2011

Stocks Set To Finish The Year Pretty Flat

The market is roughly flat in early trading. If the SPX were to finish at these levels, it would be up less than 0.40% for the year. I think I heard CNBC say that would be the flattest year since 1970. Nevermind the volatility along the way that saw the SPX get as high as 1370 and as low as 1074. I for one am hoping for a decrease in volatility for 2012.

There is very little newsflow today both on the corporate front as well as any economic data. Yesterday saw broad-based buying but on very thin volume, which of course pushed things higher. Volume will likely be lighter today ahead of the holiday and with the US markets closed on Monday.

Asian markets were barely higher overnight, and Europe is mixed this morning. The dollar index is lower this morning which is helping boost commodities. Oil prices are near $99.35 but gold prices have bounced to $1571. Copper and silver prices are higher also.

The 10-year yield is a bit lower again today near 1.88%; and the VIX is up a little to just below the 23 level (22.89).

Trading comment: The SPX got back above its 200-day average yesterday. That means it was only below that key average for one day, which normally would be a bullish sign. With volume very light yesterday and year-end window dressing in effect, its hard to place a lot of significance on yesterday's action. I don't want to completely discount it, but I think we will get a better sense of the action when traders are back in full force next week. So I would give the nod to the bullish side of the equation here, but wait for confirmation next week before adding to my long positions. We still have seen fewer breakouts in leading growth stocks than we would normally see if a new upleg in the market were at hand. Let's hope 2012 brings more winners.

Happy new year to everyone--

Thursday, December 29, 2011

Euro Lower On Lackluster Italian Auction

The newsflow is relatively light this morning, and surprisingly our markets are higher despite the euro moving lower. The results from an Italian bond auction this morning were okay, but not strong enough to help boost the euro. Yields offered on the bonds were lower than last month's auctions, but still relatively high. 10-year yields in Italy remain above 7.0%.

The weakness in the euro is boosting the dollar and hurting most commodities. Oil prices have fallen back to $98.50, and gold is down again to $1530.

In the U.S., pending home sales for November came in above expectations with an increase of 7.3%. And the Chicago PMI for December was also above expectations at 62.5, in-line with the prior month.

The 10-year yield is fractionally higher to 1.92%; and the VIX is lower by 2% so far near the 23.0 level.

Trading comment: We haven't done a lot on the trading side of things this week. As portfolio managers know well, this is a busy week for us in terms of last minute tax-loss harvesting to offset capital gains, last minute IRA contributions, as well as any year-end rebalancing. So while you hear a lot of stories about trading slowing down, it is anything but slow at our firm. And next week the fireworks will start in earnest again.

Wednesday, December 28, 2011

Euro Breaks Recent Support

In recent months, I have said repeatedly that all you need to do is look at what the euro is doing to know how stocks are faring. This morning the euro is breaking recent support levels and falling to fresh lows.

The drop in sentiment comes on news that the ECB's balance sheet has grown to a record 2.73 trillion euros. And despite positive Italian bond auctions this morning, bank deposits at the ECB are now at a record 452 billion euros. So although the stress in the U.S. stock market has eased in recent months, the stress on the interbank lending markets in Europe remains high.

Asian markets were slightly lower overnight, while Europe is mixed this morning. The drop in the euro and rise in the dollar is also weighing on commodities. Oil prices have eased back to $100.33, but are still high amid tensions with Iran threatening to close the Straight of Hormuz (a key shipping route for crude oil). Gold prices are also lower, down to $1575.

The 10-year yield was able to get above 2.0% for a couple days, but is back below those levels today. It is currently down near 1.94% after running into overhead resistance at its 50-day average.

As for the VIX, it is up another 5.25% right now above the 23 level. A lot of traders were looking for volatility to continue lower as we neared the end of the year and another 3-day weekend, but the last 2 days have seen a fair bounce in the VIX. That said, the VIX is still well off of its highs from recent months and much closer to getting back below the 20 level where it was before the market fell out of bed in August.

Trading comment: We have been pretty quiet here in year-end trading. The SPX is at key technical levels. Yesterday it close above its overhead 200-day average near 1259. A couple of consecutive closes above this level would have put the bulls back in front. But today we are trading back down below those key levels. We will have to see how the market fares into the close, but a quick turnaround back below the 200-day in one day's time isn't what the bulls were hoping for. The SPX has been up for 5 straight days, so I would expect some normal consolidation. But I would like to see a mild price drop.

Tuesday, December 27, 2011

Monday Morning Musings

The market has opened fairly sluggish, possibly nursing a small hangover from the holiday festivities. I took Friday off for a little golf as the weather in LA has been sunny and nice. Now its back to the grind and seeing if the markets can add to their nice finish to last week.

Asian markets were mostly lower overnight, with Hong Kong still closed. And Europe's markets were mostly higher today despite the yield on Italian bonds hovering back near 7.0% again.

Volume levels will likely remain light for this shortened week. Corporate news is relatively light this morning, but SHLD is getting whacked on poor retail sales and the announcement that it will close more stores and draw funds from its credit facility.

In economic news, the Case-Shiller home price index showed another decline in home prices for October, as prices fell 3.4%. But the Consumer Confidence index for December rose much more than expected to 64.5 from 56.0 last month. We have seen some strong consumer confidence numbers this month and it will be interesting to see if that sort of sentiment continues in early 2012.

The dollar is a bit lower but so are most commodities. Gold prices have slipped below $1600 and copper and silver prices are lower as well. Oil prices are above $100, but this has more to do with comments out of Iran about possible supply disruptions.

The 10-year yield is roughly flat near 2.01%. And the VIX, which had gotten down near the 20 level last week, is spiking +6% to 22.15 currently despite the flat market. It could be that traders are anticipating a pickup in volatility in January and are buying ahead of the turn of the calendar. This is actually a trade that I am considering.

Trading comment: The market finished last week on a strong note after 4 straight up days. I had said I was looking for an early Santa Claus rally, and it will be interesting to see how things shape up this week. I have a sense that trading could simply be quiet as traders look to just hang on into year-end. But we could also see another push higher as last minute window dressing plays out. I would start looking for things that could reverse in January. Some stocks are very extended in here, and looked primed for a pullback. Other stocks are likely being sold just to take the losses and could rebound in January. But for now I am focusing on the former.

Thursday, December 22, 2011

Slight Downward Revisions to Q3 GDP

I'm getting a bit of a late start today, which is often the case when my parents are in town visiting. My kids are so excited to have them there, its hard to keep them from running in and waking my folks at the crack of dawn.

The markets are higher this morning, which would make for three straight gains in the SPX if it holds. Those waiting for the Santa Claus rally to start next week might be a little late to the party.

Asian markets were mostly lower overnight, but Europe is higher today after the ECB released results from its latest liquidity program, the Long-Term Refinancing Operation (LTRO). There was strong bank participation, which hopefully will prove to be a good think like TARP was in the U.S. (even though it was unpopular).

In economic news, Q3 GDP was revised downward a bit to 1.8% from its last estimate of 2.0%. But early Q4 estimates are for growth above those levels. The December Univ. of Michigan consumer sentiment reading came in at 69.9 which is up nicely from last month's reading of 67.7. And this week's jobless claims were lower than expected. So net-net, I view today's economic data as a glass half-full.

The dollar is flattish and commodities are mixed. Gold prices are lower to $1607, while oil prices are higher back to $99.60. Copper prices are higher also.

The 10-year yield is down slightly to 1.95%; and the VIX is falling further down to the 21.0 level. I view this as bullish in the short-term, but would probably look to get long volatility and expect another pickup in Q1.

Trading comment: The SPX continues to act well since bottoming on Monday. It is outperforming the Nazz this week after reversing yesterday's lows and finishing in the green. The chart below shows that today is the third day (so far) above the 50-day average, and now the overhead 200-day is in sight. It currently sits near SPX 1259. I think if this rally continues and people look to put more money to work into year-end we could take out those levels, but I don't expect it to be a straight shot. I also think money will be put to work in the winners, not the laggards, as portfolio managers try to add to their winners and make it look like they had big positions in those stocks.

Wednesday, December 21, 2011

Oracle Takes Away The Punch Bowl

Asian markets rallied overnight, following the strong showing on Wall St. yesterday. European markets were also higher this morning on a report from the ECB that bank borrowing needs are being adequately met.

But following ORCL's disappointing quarterly report, tech shares are down heavily this morning and that is weighing on the overall market. ORCL's stock is getting hit and hurting anything that is related to CRM, cloud computing, etc. The Nasdaq 100 is down -2.0% early, while the S&P 500 is off -0.65%.

Among sectors, tech is down the most, while defensive areas like consumer staples and utilities are bucking the weakness so far and trading in positive territory. If will be interesting to see if dip buyers show up today in tech stocks.

On the plus side, Nike (NKE) had a solid quarterly report and its stocks is up nicely today, almost back to 52-week highs.

The dollar is higher vs. the euro today, which is weighing on some commodities. Oil prices are higher near $98.38, but gold is down to $1615 and silver and copper prices are lower as well.

The 10-year yield is adding a bit to get to 1.92%; and although the market is down this morning, the VIX is also nearly 3% lower to 22.55. I still think this continues to bode well for the bulls into year-end.

Trading comment: Tech stocks are getting destroyed this morning if they are related to cloud computing, etc. Stocks like AAPL and GOOG are holding up better. It will be interesting to see which stocks bounce back first. But those that don't bounce and continue to act as laggards should be avoided for now as year-end selling of losers could continue to weigh on them. As for the SPX, it has pulled back exactly to its 50-day average, which is acting as support so far. I think that is important. A 2nd close above the 50-day would be a bullish sign, and supportive of another move higher for the senior index. I would also like to see volume on today's pullback come in lighter than yesterday's rally. So let's watch for that.


Tuesday, December 20, 2011

Is Santa In The House?

Yesterday I mentioned that the stock market was getting oversold again and sentiment was getting more bearish, but that for the market to rally we just needed some catalyst.

Well along comes Spain and out of the blue they hold a debt auction that was stronger than expected. That really improved sentiment in Europe, along with some solid sentiment surveys in Germany and the UK, and got the euro rallying. We know that lately if the euro is higher, the stock market is higher.

Asian markets were up slightly overnight, but Europe's markets are up nicely today. The Dow has spiked nearly 300 points so far. In economic news in the US, housing starts and building permits were both better than expected. Homebuilder stocks are rallying on the news.

In corporate news, General Mills (GIS) came up short of consensus estimates and its stocks is lower. CVS issued an in-line outlook and hiked its dividend by 30%. Its stock is nicely higher.

The dollar is lower, which is boosting commodities. Oil prices have spiked up to $97.25, while gold prices are back above $1600 near $1618. Silver and copper prices are higher also.

The 10-year yield is getting a big boost to 1.90%, which is still a pretty low yield overall. And the VIX is down sharply again, falling more than 9% so far. The VIX is currently at 22.60 and if it closed at these levels it would be the lowest reading since late July.

Trading comment: It didn't feel very good to do some buying yesterday, but I feel much better about it today, lol. The SPX had been turned down by its overhead 50-day average the last few times. At the time, I said that I felt that was normal and that after a pullback and some consolidation we could see a successful move above that key moving average. So far today the SPX has broken above its 50-day which was at 1230. A solid close above that level should embolden bulls to do more buying and bears to cover shorts. We are still long are trading positions in SCSS, TSCO, ULTA, and STMP. We also added some IWM yesterday to add overall exposure.

KAM Advisors has long positions in all stocks mentioned

Monday, December 19, 2011

Lack of Catalysts To Drive Markets Higher

The markets were higher in early trading, but have since faded as a lack of any significant catalysts exist today to help drive markets higher. There have been very few economic or corporate announcements. News out of Europe was also quiet over the weekend, with some continued chatter about whether the ECB will step up its bond purchases.

The big news even was the death of Kim Jong Il in N. Korea, and what that might mean for the transition of leadership in that country. Asian markets were down across the board overnight amid the uncertainty.

Financials have led the reversal lower this morning after the Basel committee said they would like higher capital requirements for the banks. Financials are down the most so far today, while healthcare stocks are up the most.

The dollar is up a bit today, which is weighing on commodities slightly. Oil prices are flattish near $93.60 and gold prices are also a bit lower near $1595.

The 10-year yield continues to languish down around 1.84%; and the VIX is currently up 3% right to the 25.0 level.

Trading comment: The major indexes were down an average of 3% last week, and the market is now back into oversold territory. I expect choppy trading to continue in this news driven market, but I think this week's trading will have an upward bias as people look for a potential Santa Claus rally to surface. Trading will likely continue to be light as many folks have simply called it a year and closed up their trading books. The rest of us will continue looking for profitable trades in investments on a daily basis.

Friday, December 16, 2011

Financials Lead Early Action Despite Fitch Downgrade

The markets are higher again in early trading. Yesterday the rally faded as the trading session wore on. We shall see if the market can hang on to its early gains today. Today is also options expiration Friday which could make things a little more volatile, but usually most of the action happens at the open on these expiration days.

Financials are leading the early action. This despite Fitch downgrading the debt ratings of Bank of America, Goldman Sachs, and several European banks.

In economic news, the overall CPI came in flat for November, which was lower than consensus expectations. The core CPI rose 0.2%.

Asian markets were higher overnight, and most European markets are up this morning as euro bonds have seen a pullback in yields which has helped improve sentiment for the time being. The latest country looking for a bailout from the EU and IMF is Hungary.

The bounce in the euro and pullback in the dollar is helping gold prices bounce back to the $1600 level following a sharp 3-4 day selloff in the yellow metal. Oil prices are roughly flat near the $94 level. (We are still short oil via the SCO etf).

The 10-year yield continues to languish and has fallen all the way down to 1.86%. The bond market would seem to be pricing in more of an economic slowdown that most of the GDP forecasts that I have seen.

As for the VIX, it is now well below the 25 level which would signal a decline in the wild volatility that has been with us for months. It got as low as 23.50 this morning and is currently hovering just above the 24 level.

Trading comment: The SPX has bounced off of its overhead 50-day average both yesterday and again this morning. The 50-day sits near SPX 1228. That is the first level we need to close above for this rally to continue. Hopefully we don't get any more earnings warnings like we got from Intel. If so, I still think there is a shot for another push higher into year-end. I have been premature with this call, but did correctly point out that after the SPX tested its overhead 200-day moving average there would likely be a pullback and some consolidation first.

Thursday, December 15, 2011

Chart of the Day: Is The Run In Gold Over?

Below is the chart of gold. Over the last few days, gold prices have plunged and taken out some long-term support levels. You can see in the chart below that the gold etf (GLD) has now broken below its 200-day moving average. We have not seen this support breached in years.

If the 200-day is recaptured quickly, it could mean a shallow correction for gold. But if that key moving average is not recaptured in short order, it likely means gold prices are in for a longer, deeper correction process.

Gold prices often move inversely to the U.S. dollar, so that is a wild card in this scenario. In recent days, the euro has been very weak and there has been a flight-to-safety into dollars. If the debt situation in Europe continues to deteriorate I would expect the dollar to continue to act as a safe harbor. But I also wouldn't rule out EU officials making more announcements about "plans" to deal with the crisis which could continue to prop up their currency.

The next chart is the longer-term chart of the GLD going back to 2009. You can see that this is the first time that the long-term moving average has not held as support going all the way back to the early breakout in gold in 2009. So the recent price action is meaningful and as such I plan to keep the GLD front an center on my screens for the near-future.

For the time being, we have not trimmed any of our positions but will likely lighten up on future bounces.

long GLD

Wednesday, December 14, 2011

The Euro Is In Charge

In recent months I have mentioned from time to time that if you want to know if the market is up or down on a given day, all you had to do was ask how the euro was doing. For the last few days, the euro has been under pressure and that has been weighing on the market.

Today, the euro is breaking down further and nearing a one-year low. Results from debt auctions in Germany and Italy failed to inspire any confidence. And the credit gauges in euroland have been deteriorating for weeks. I hope EU officials develop more of a sense of urgency.

The weak euro has pushed the dollar higher and led to a sharp selloff in commodities. Metals are down across the board today, led by silver. But gold prices are also getting hit hard and are now well below the $1600 level. Oil prices have also fallen down to the $96 level, a big drop from yesterday's rally to $100.

All of the 10 major sectors are lower so far, led by energy. Healthcare and utilities are down the least. Interestingly, REITs are actually mostly green on the day. Growth stocks are down the most relative to value stocks.

The 10-year yield is lower to 1.92%. It sure didn't stay above 2.0% for long. As for the VIX, it is up +7.7% today to 27.37, but still well below last weeks highs and yesterday it briefly dipped below 25 for the first time in months.

Trading comment: I have been trying to remain constructive on stocks, but this latest euro plunge is garnering all of the market's attention this week. The market is no longer overbought, and soon will be back to oversold levels. The SPX has broken below its 50-day average near 1226 and is currently trading near 1210. I don't want to see this 50-day average become resistance, so we need to see it recaptured in short order. Also, keep an eye on leading growth stocks, which had been looking okay but today are taking the brunt of the selling. I am watching our recent trades like RVBD, SCSS, TSCO, and ULTA closely.


Tuesday, December 13, 2011

Dip Buyers Surface In Early Trading

The market is higher in early trading, as buyers have stepped up to buy the latest dip that was yesterday's selloff. There isn't a whole lot in the way of positive news, but that hasn't gotten in the way of this morning's agenda to put some money to work.

The FOMC meets today and while there is some rumors of the Fed announcing further QE initiatives, I think the most likely scenario is to hear more of the same and that the Fed remains accomodative.

In corporate news, Best Buy (BBY) reported earnings that missed consensus estimates and its stocks is getting hit.

In economic news, retail sales were up 0.2% in November, which is less than expected. The combination of this report and poor BBY results is weighing on the retail sector this morning.

Asian markets were lower overnight, while Europe is getting a bounce this morning on little new news. There was some encouraging data out of Germany, but the euro is lower on the day so far.

Commodities are mixed. Gold prices are up a bit near $1670. Oil prices have been up the most, above $100 earlier, as news leaked out that Iran was looking to shut the Straight of Hormuz in some sort of military operation. But as news has come out that it remains open, oil has eased back from its highs.

The 10-year yield is getting a nice bounce near 2.05%. I think it would be a big positive for sentiment towards the economy if the 10-year yield could lift a little more. It did get up to 2.40% in October, but that rally was short-lived.

Probably the biggest suprise today was when I came in and saw the volatility index (VIX) down 9%. The VIX got as low as 23.27, although it has bounced from there. I actually bought a little VXX for a daytrade as these morning drops in the VIX never seem to stick for the entire session. But it is still a big positive if it can close below the 25 level.

Trading comment: Stocks are already off of the earlier highs as I finish this blog post. I expect trading to be relatively quiet until after the FOMC announcement when the fireworks usually begin. I don't expect any big surprises, but the market could still rally afterwards. Yesterday the SPX got down close to its 50-day support before bouncing. So the index has been squeezed between its overhead 200-day and its 50-day below. While the credit indicators are still flashing caution, I still believe we will see another push higher before year-end.

long SCO, VXX

Monday, December 12, 2011

Monday Morning Musings

The markets are down sharply in early trading. So much for that bounce on Friday. As of now, it looks more like that was just a reprieve to the selling that started in earnest on Thursday. But let's see how the day shapes up.

Increased skepticism with Europe's latest "plan" has led to yields in countries like Italy and Spain rising again. Other credit metrics are also deteriorating today. Europe's stocks markets and the euro are all lower this morning.

The drop in the euro is boosting the dollar and hurting commodities. Oil prices are down to $97.65, and gold prices have plunged all the way to $1661. Copper and silver prices are also down sharply.

Asian markets were mixed overnight, with Japan higher but China down again. Some numbers out over the weekend suggested that growth decelerated for China in November.

Here in the U.S., Intel (INTC) lowered its outlook for the current quarter and that weighed on the tech sector and the overall market. INTC is blaming it on disk drive shortages (Thai flood), but most think it is also related to overall PC demand.

The 10-year yield is hovering just above that 2.00% level at 2.01%; And the VIX is up 4% so far near 27.45, but still well below last week's highs after that sharp move lower on Friday.

Trading comment: Selling has picked up again as the choppy trading since hitting the 200-day average continues. The lows on the SPX from Thursday are near 1231. So far today we have not broke below those levels, but if 1231 gives way we could see selling pick up steam. The enthusiasm over the can kicking from the EU summit last week seems to have faded quickly. I have mentioned that I thought most folks would be in dip buying mode into year end, and I still think that is the case. But I acknowledged the likely possibility of a pullback and more consolidation before the SPX made another stab at taking out is overhead 200-day resistance. I think that is what we are seeing now, but I still think buyers will step up again. So I will be patient and look for stocks that are holding up well to add to into this decline.

long SH

Friday, December 09, 2011

Stocks React Positively To EU Summit Announcement

There weren't a ton of details provided about the new agreements that came out of the EU summit, but after yesterday's sharp selloff the news was enough to spur buyers back into the market.

The members agreed to tighter fiscal controls, with penalties for member nations that exceed budget deficits of more than 3% of GDP. They also stepped up the time table with which the ESM should enter the picture. But it looked to me like the dollar amounts they are talking about are still not enough to really ringfence the problems. Also, Britain decided not to sign and join into the agreement as they don't want to cede any fiscal sovereignty.

Asian markets were lower overnight, despite a CPI figure out of China that looked better than expected. Europe's markets are higher this morning, and the euro is getting a slight boost as well.

Commodities are mostly higher, except for oil prices which have been slight lower near $98.20 this morning. Gold prices are up to $1716, and copper and silver prices are higher as well.

In corporate news, both Texas Instruments (TXN) and DuPont (DD) lowered their forecasts. Those stocks are getting hit, but are not weighing on the rest of the market for the most part.

The 10-year yield is trying to get back above the 2.00% level after falling below it in yesterday's trading. And the VIX is down 7% so far down to 28.40 after spiking back above the 30 level yesterday.

Trading comment: We still have a long way to go into today's session, but so far buyers have already stepped up to the plate. I have said I thought we were in the timeframe of the year where most investors would be in buy-the-dip mode. And since yesterday was a pretty big dip by most measures, it is not surprising to see buyers come into the market. The SPX continues to consolidate underneath its 200-day average. I still believe it will make a successful breakout before year-end. But I also realized the credit gauges have not improved, and the chances for another correction in Q112 remain high.

Jordan Kahn and/or KAM clients are: long GLD, SCO, SLV, and SH

Thursday, December 08, 2011

Quote of the Day

From the UK paper The Telegraph:

"Draghi's insistence that the fiscal contract eurozone leaders are attempting to thrash out at their latest summit will be sufficient in itself to restore confidence is cloud cuckoo land. He cannot sincerely believe it. The problem in the eurozone is not fiscal indiscipline, though there has certainly been a lot of it, but current account imbalances entrenched by big differences in competitiveness. These cannot be made to go away with repeated rounds of growth stifling austerity, and as for Mr Draghi's claim that it is possible to have both fiscal austerity and decent growth provided competitiveness is improved, it's simply naive to believe that's what is going to happen in practice. In fact, most of the evidence from the eurozone periphery is that it is continuing to lose competitiveness against the surplus north, with Germany progressively improving its share of an ever-shrinking market. As long as that goes on, the debt problem is going to get worse, not better. This weekend's summit will do little to solve the fundamentals of this crisis. Only a fully functioning fiscal and political union, with tax and spending decisions centralised in one authority across all 17 nations can do that. Even turbo-charged by financial and economic crisis, that's a very long road indeed."

Draghi Pours Cold Water On ECB Bond Purchases

The market is lower in early trading after a disappointing reaction to comments by ECB Pres. Draghi, who implied that the ECB would not step up its bond buying program beyond what has been discussed already. It's unclear to me why he is taking this tone, unless he is trying to get other players to get more involved. The EU summit is tomorrow (tonight actually) and maybe this is posturing ahead of it. We still don't know to what extent the IMF may get involved.

The ECB also cuts its main lending rate 25 bps to 1.00%. Draghi said there was no talk of 50 bps, and that the vote was not unanimous. The ECB also lowered its marginal lending facility to 1.75% from 2.00%. The Bank of England held its rate steady at 0.50%. And the Danish central bank cut its rate from 1.20% to 0.80%. So the liquidity spigot in Europe is opening, but I'm not sure even a fire hose can help more than just a temporary stop-gap.

The euro is lower on the rate cut news, and that is weighing on commodities also. Gold prices are lower near $1715, and oil prices are down to $98.75.

In the U.S., jobless claims fell more than expected to 381,000, but folks are already complaining that this figure was seasonally adjusted and is thus skewed.

The 10-year yield has eased back to 2.00%, that key level that we can never seem to hold above for too long. And the VIX is spiking +4% higher so far and has touched the 30 level again (currently 29.80).

Jon Corzine is testifying before Congress this morning about the MF Global disaster. He'll probably say that he just didn't know about the fund diversion. I don't expect them to get a lot of answers and clarity from him. What a fall from grace.

Trading comment: The biggest news item this week will be the announcement that follows tonight's EU summit. The market has recently rallied up to overhead resistance, so its normal to see a pullback from those levels. The hard part is gauging how the market will react to tomorrow's announcement. A positive reaction could result in a successful breakout above recent resistance. But a negative reaction could easily take the SPX back down to its 50-day average below. I'm betting we have a little more correcting to do, but hoping its not too big. I still think that most participants are in buy-the-dip mode into year-end. That said, I hope the EU officials bring out the howitzer.

Wednesday, December 07, 2011

ECB Extending More Liquidity

The markets are lower in early trading, but there has not been much news. Asian markets were higher across the board overnight, while Europe is up slightly this morning.

The ECB has said that it will loosen the criteria for loan collateral, which is an attempt to provide more liquidity to member nations. Tomorrow the ECB will have its policy announcement and many investors are hoping that they ease monetary policy further with an actual rate cut. Of course, the big event this week is the outcome of the EU summit on Friday and what they will say in terms of any big initiatives to deal with the debt crisis.

The euro is down slightly on the news, and most commodities are flat. Gold prices are actually up a bit near $1734, but oil prices are lower and have broken the $100 level.

Energy and financials are lagging the action so far this morning, while healthcare and utilities are down the least.

The 10-year yield is lower to 2.06%; and the VIX is +3.5% higher near 29.25.

Trading comment: If you pull up that chart of the S&P 500 you can see that once again we were turned away at overhead resistance near the 200-day average, which sits near 1264. The market hit that level again yesterday but faded, and this morning is moving lower still. I expect some consolidation around these levels, with an eventual successful push above these resistance levels. I would actually prefer to see the market pullback ahead of the EU summit meeting. I worry that if we rallied straight into the meeting, that might increase the chances of selling off harder after the news comes out.

Tuesday, December 06, 2011

S&P Puts Most Eurozone Members On Downgrade Watch

The market is flattish in early trading on lot a lot of news here in the U.S. The big news release came last night when S&P analysts put 15 eurozone members on credit watch for a potential downgrade. It's a bit odd that they would do them all at the same time, but not that surprising given the state of the finances among member nations.

Asian markets were lower overnight, and European bourses are down this morning as well. The dollar is slightly higher vs. the euro, and commodities are mostly lower. Oil prices are off slightly to $100.66 and gold prices are also lower near $1713.

The 10-year yield is still above its 50-day average at 2.06%; and the VIX is down a fraction to 27.65.

Other than that there is not a lot of domestic economic data or corporate news that is moving the market. Defensive sectors like healthcare and utilities are leading the market so far while financials are lagging the action.

Trading comment: The S&P bumped its head at its overhead 200-day average for a second day and moved lower from there. The index is still below those levels but does not seem to be giving up much ground so far. The S&P 500 is now barely in positive territory for the year, and I think that performance anxiety will continue to be a factor from here into year-end. That means I expect dips to be more shallow than in recent months as more participants look to use pullbacks to their advantage. The put/call ratio opened very low this morning, which also lends itself to this thesis.

Monday, December 05, 2011

Monday Morning Musings

Market participants are back in buying mode this morning despite last week's outsized gains. The positive sentiment has been helped by rumors out of Europe that the ECB is preparing to inject 1 trillion euros into its financial system to support the debt purchases in the region. It is unclear where the trillion euros will come from.

Also, Italy has established a new austerity plan. While the markets applaud this long-term thinking, don't forget that austerity measures will weigh on growth for years to come.

In economic news, the ISM Services index slipped a bit to 52.0 from 52.9 last month, but is still at a level that signals expansion in the sector.

Asian markets were mostly higher overnight, but China fell -1.2%. The dollar is lower today as the euro gets a boost. This is helping most commodities, but gold is heavy and trading a bit lower near $1748. Copper and silver prices are higher, and oil prices are up to $102.

The 10-year yield is getting a boost to 2.10%; and the VIX is drifting lower down -3.5% to 26.55 currently.

Trading comment: On Friday I showed that chart of the SPX reaching resistance levels. That level held as resistance on Friday and turned the market lower. But this morning a little good news (Europe) goes a long way, especially when you are in the final stretch to year-end and performance anxiety among portfolio managers is at a high. Buyers have pushed the SPX right back to that resistance line, which also coincides with the overhead 200-day average of the market. I'm not sure if we will stay comfortably above this level (1265) this week, or if we need to see a little more consolidation. But it does feel like if we don't get any real disappointing news that the market does want to make a successful push above these levels.

Friday, December 02, 2011

Chart of the Day

I mentioned in my opening post on the main page that the market had reached important resistance. Here is the chart:

Hopefully you can see that purple trend line drawn in that I had been watching since early October as support for the SPX. Well on 11/17 you can see that the SPX broke decisively below that trendline, and the market had a correction.

Now, the market has rallied all the way back to the underside of that trendline. That seems like a logical place for the market to take a breather, and I have trimmed more of our trading positions today.

Unemployment Rate Drops To March 2009 Levels

The market is higher this morning on the heels of further action in Europe to deal with the debt crisis, and an in-line employment report.

Europe was already higher this morning after news out that the ECB would loan the IMF 100-200 billion euros to fight the debt crisis. This is a backend way to get the IMF involved, by the ECB giving them the initial funds. But 100-200 billion euros is a drop in the bucket, and there is going to have to be much more involvement. I suspect EU officials will try to bring in more funds from surplus countries like China, Brazil, etc.

Here in the U.S., the nonfarm payrolls report showed that the economy added 120,000 jobs, in-line with estimates. Private payroll additions were a little higher at 140,000 (also in-line). But the big surprise was the unemployment rate, which dropped unexpectedly to 8.6%. It is now back to levels we haven't seen since March 2009. Some will argue that it's due to more people dropping out of the labor force, but that still leaves fewer people looking for jobs.

In corporate news, RIMM lowered guidance and said it will take a charge related to its Playbook inventories. That means it couldn't' sell as much as it thought, as iPad remains the #1 tablet. It's stock is down -9% so far. As for WDC, it's up 10% after raising guidance and saying it will resume production that had been halted due to flooding in Thailand.

The euro is lower today, but that isn't really hurting commodities. Copper prices are higher, and oil and gold are steady. Oil prices are still hugging the $100 level, and gold is up slightly near $1753.

The 10-year yield is easing back a bit to 2.07%; and the VIX is down -3.6% right now to 26.40. It had been down to 25.30 earlier before bouncing higher. As I have said, a move below 25 that sticks would likely embolden the bulls to be even more "risk on".

Trading comment: The market has now been up big for 4 of the last 5 sessions, even though we still have a long way to go today. But I will post a chart later that shows that the market has reached some important resistance levels and is likely due for a little pullback. I am trimming a few positions just slightly, and will wait to put more cash to work on said pullback vs. chasing things here. I hope I'm right. We are also getting into the time of year when performance anxiety peaks and where more good news out of Europe over the weekend could lead to additional short-covering.

Thursday, December 01, 2011

Looking For Market To Take A Breather Now

The markets are roughly flat after yesterday's outsized rally. Yesterday was one of the biggest point gains on record for the Dow. The only problem is that if you look at the list of the biggest point day, almost of all of them were bear market bounces that didn't last. Let's hope this time is different.

Same-store sales reports have been coming out for retailers and have been a mixed bag for the most part. On the upside are stocks like ROST, COST, JWN, and GES. But there have been some big disappointments such as LULU and KSS.

In economic news, the ISM Manufacturing Index for November came in at 52.7, which is a nice bounce from 50.8 last month. China's PMI last night came in below expectations and dropped below the 50 level, which marks the delineation between expansion and contraction.

Europe's markets are mixed this morning after bond auctions were held in Spain and France. The euro is slightly higher, while commodities are mixed. Oil and gold prices are both roughly flat so far at $100.50 and $1750, respectively.

The 10-year yield is higher again to 2.10%; and the VIX is down -1.55% so far near 27.37.

Trading comment: Yesterday's gain came as a big surprise to most investors. Especially since the night before S&P had downgraded the banks and the futures were pointing to a lower open. The coordinated action by the central banks led to a sharp short-covering rally. The question now is will it be more similar to 1998 when the Fed action sparked a lasting rally or more like 2008 when there was more downside to come? I would not rule out the possibility of performance anxiety kicking in between now and year-end and pressuring portfolio managers to do more buying in hopes of adding performance. I know that's how I feel on a day like yesterday.